Middle East eyes heavier ethylene feedstocks as US rides ethane wave

As North American shale resources drive low-cost ethylene production, Middle East producers are shifting their focus to heavier feedstocks and higher value-added products.

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Abundant North American shale energy resources are driving
low-cost ethylene production and a competitive resurgence for
the continents producers of ethylene and ethylene
derivatives.

At the same time, producers in the Middle East -- facing the
opposite and unfamiliar challenge of ethane supply limitations
-- are shifting their focus to heavier feedstocks and delivering higher
value-added products.

These findings were
presented in a new study released Thursday. The study,
titled IHS Chemical 2014 World Ethylene
Analysis, covers historical developments and future projections for supply, demand,
capacity and trade in the global ethylene markets for 2008 to
2023.

Low regional ethane prices continue to support high
ethylene margins for North American producers, while producers
in other regions are facing an opposite situation, said
Steve Lewandowski, director of olefins research at IHS, and one
of the authors of the report.

Once blessed with abundant supplies of cheap ethane,
Middle East producers invested heavily in capacity additions,
but this market shift, and a lack of readily available ethane
supplies, has effectively put a stop to new, low-cost
ethane-based ethylene capacity and shifted investments to
ethylene based on LPGs (liquefied petroleum gas) and
naphtha feedstocks.

Producers in the Middle East, he said, face some challenges,
such as a less developed infrastructure as compared to what
exists in the US, and a mixed global-demand-growth environment (rapid expansion in developing regions and
slower growth in developed regions).

According to the IHS Chemical analysis, after contracting
considerably in 2008, world ethylene demand is forecast to be
close to 140 million metric tons (MMT) in 2014. In the next 10
years, IHS estimates global ethylene demand will grow at
approximately 4%/year, reaching nearly 196 MMT by 2023.

During the next 10 years, China and the Middle East will
continue to be the largest drivers of global ethylene demand
growth; however, since its domestic market is small, most of
the Middle East demand for ethylene will be for export in the
form of primary derivatives, such as polyethylene and ethylene
glycol.

Ethylene demand growth in the Indian Subcontinent, Southeast Asia,
South America and Africa also is projected to remain considerably
above the global average, but from smaller absolute base
levels.

In contrast, consumption volumes in North America and Europe are forecast to grow slowly
for the next few years, but after 2016, the large-scale
investments in nearly 14 MMT of North American ethylene
capacity will require a substantial rise in ethylene derivative
investment.

The new derivatives are primarily to feed exports to the rest
of the world (South America, Asia, Europe, etc.), according to the IHS
report.

"The US ethylene industry and the ethylene industry in the
Middle East have essentially traded places in terms of supply
outlook in the past few years, due to the emergence of low-cost
feedstocks,"
said Lewandowski.

"There is a tremendous amount of US capital investment that is
underway, with units starting up beginning in 2017. Middle East
players wish to participate in the North America low-cost feedstock boom, and are seeking
joint venture partners with North American companies as one
entry strategy.

Demand in Asia, particularly China, continues to grow since
Chinas chemical industry remains unable to meet the
countrys rapidly growing consumption requirements,
according to the report.

Sharp increases in consumption stemming from Chinas rapid
industrialization have spurred the development of numerous new
domestic ethylene and derivative complexes that are either
under construction or planned for the next
few years, including several coal-based facilities.

According to the IHS report, imports of ethylene and ethylene
derivatives into China will continue to increase rapidly during
the next 10 years, when they are projected to be about 50% higher
than the estimated 2013 volume of nearly 16 MMT.

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